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Wednesday, March 18, 2015

Amazon: No fear of failure

Since the mid-nineties, America’s premier e-commerce site has habitually and utterly disrupted retail. But recently retailers have hit back, with more nimble e-commerce sites of their own, price matches, and delivery options that continue to rival whatever Amazon comes up with.

And while other retailers created and improved their omni-channel strategies, Amazon overplayed its hand and launched an entire phone when a mobile app may have been the better trick.

But Amazon’s willingness to try and fail may ultimately be the key to its continued success. Retail Dive looks at the challenges Amazon faces these days.

Showrooming goes in reverse

There was a time when retailers large and small were crumpled by shoppers showrooming—where they would check out the goods they wanted in stores and buy from Amazon at significant discounts. But retailers of all sizes have learned to match prices, provide added advantages to being in store, or both, and now consumers are just as likely to reverse the process: search for things online and head to the store to get it immediately, a process now known as “webrooming.”

That has helped spark a dizzying array of delivery options from retailers—of all speeds and conveniences. Cheap or free shipping with increasingly lower minimums, same-day delivery, and pick-up in-store.

“While showrooming is centered on price, 'reverse showrooming' is all about discovery,” writes Jeff Fagel, CMO of G/O Digital, in Entrepreneur magazine. “Therein lies the real opportunity. As our research found, 30% of holiday shoppers said they always use their desktop/laptop computers to research on-sale items before heading to stores. If that stat isn’t convincing enough, another 25% said they go online to ‘compare products and prices between retail stores’ before making their way to stores.”

Prices don’t matter so much anymore

These days, consumers are in the driver’s seat, demanding good value from retailers of all kinds, not just Amazon. For one thing, they’re wising up to the fact that Amazon doesn't necessarily present the best way to shop, and its prices aren’t always the lowest any more either.

Larger retailers like Target, Wal-Mart Stores, and Best Buy have risen to the challenge and have done a good job of matching Amazon’s once-always lower prices.

And retailers like local booksellers, which can’t meet Amazon’s cut rates, have found other ways to please customers with services and loyalty programs that require in-person relationships.

"There is this larger, cultural shift ... to buy local,” Stacy Mitchell, a senior researcher with the Institute for Local Self-Reliance, told CNN. "Rather than pulling back and buying into the idea that they could save a few bucks elsewhere, in many communities, people seemed to make even more of an effort to steer their spending to businesses owned locally.”

E-commerce is still being disrupted

And not always by Amazon. In addition to pricing, delivery, pick-up, and return options offered by many retailers, soon-to-launch Jet will be introducing even newer ways for consumers to save money.

Amazon initially freaked out retail by undercutting on price, then disrupted itself (and everyone else) further by offering ways to get free shipping. But Jet, much like bulk e-commerce site Boxed, is adding layers of disruption by providing more variables and choices to consumers. Also like Boxed, Jet plans include nimble mobile commerce, Jet CRO Scott Hilton told Retail Dive.

The site will work with retailers’ inventories to locate items a shopper wants and provide options. The item, price, speed, basket size, and basket mix are all variables that may be under a shopper’s control, and Jet shows the potential savings.

“We have a unique tech angle—live dynamic pricing and repricing,” Hilton says. “There are options that steer shoppers to more economically efficient orders. Jet members will be able to pay more to speed up shipping or waive the right to return to save money.”

Jet will be based on a membership model. At $49 a year, it’s way below Amazon’s $99 Prime membership and will be Jet’s only source of profit.

Of course, Amazon’s Prime membership is a formidable thing: Amazon Prime members spend $1,500 each year, more than double the $625 non-Prime members spend. Amazon doesn’t release its figures on Prime membership, but Consumer Intelligence Research Partners, LLC (CIRP) in January estimated that the retailer has some 40 million Prime members, bulked up in part by free trial offers over the holidays.

And Prime members enjoy a raft of extra privileges that greatly boost Amazon’s value to them, including access to the company’s streaming entertainment and music services and access to its Kindle lending library at no extra charge.

Is pure-play e-commerce doomed?

New York University marketing professor Scott Galloway makes a strong case that pure-play retailers, whether just brick-and-mortar or just e-commerce, are doomed. He includes Amazon, whose approach he dubs a "last-man strategy," meaning that Amazon is waiting for its competitors to struggle under the challenges it presents to retail (free shipping, fast shipping, one-click orders, low prices) until they essentially cry "Uncle."

Galloway says that retailers (and delivery services like Uber) are successfully taking on that challenge, though, and that Amazon will stumble as stores beef up their e-commerce and especially their fulfillment options.

Others don't buy that, saying that Amazon is in many ways as special as Jeff Bezos seems to think it is.

"I disagree," writes Oracle's David Dorf in his Commerce Anywhere blog of Galloway's assertions. "Not because the logic is flawed, but rather because Amazon is not a typical retailer. I believe they could be profitable if they wanted to but instead choose to continue investing in widening their competitive moat. Not only is their retail business state-of-the-art, but their investments in AWS, tablets, payments, IoT, etc. are complementary, and help to diversify the business (yes, they can do both). Amazon is not your typical pure-play."

The phone, the drones

In addition to greatly increased competition from various directions, Amazon has launched a few high-profile shots that have so far failed to materialize or even outright bombed. Its drone program, for example, has something of a dubious future, considering regulations released in February by the Federal Aviation Administration that would bar the drones Amazon envisioned for its “Prime Air” program.

No fear of failure

The thing is, none of this likely matters in the long run for Amazon, for the simple reason that failure is baked into its approach to success.

“What really matters is, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence,” founder-CEO Bezos told Business Insider late last year.

“Whereas companies that are making bets all along, even big bets, but not bet-the-company bets, prevail," he says. "I don’t believe in bet-the-company bets. That’s when you’re desperate. That’s the last thing you can do.”